TOLENTINO vs GONZALES ( G.R. No. 26085) Augsut 12,1927

Pacto de retro A contract of sale with the stipulation that the vendor shall have the right to buy back the property within the agreed period. He may repurchase the property within the period stipulated in the contract but which can not exceed ten years. If there is no stipulation in the contract, the period shall be deemed for four years.

Usurious / Usury - contracting for or receiving something in excess of the amount allowed by law for the loan or forbearance of money—the taking of more interest for the use of money than the law allows. It seems that the taking of interest for the loan of money, at least the taking of excessive interest has been regarded with abhorrence from the earliest times

Facts:

Sometime before November 28, 1922, the appellants purchased a piece of land from Luzon Rice Mills, Inc. for the sum of P 25,000.00

The purchase was to be paid in three amortizations in the amounts of P 2,000.00 on or before May 2, 1921, P 8,000.00 on or before May 31, 1921 and the remaining balance of P 15,000.00 was to be paid on or before November 30, 1922 at 12% interest

Realizing that they will not be able to pay the remaining balance with interest on or before November 30, 1922, the appellants herein executed a pacto de reto sale with the defendants, BENITO GONZALES and SY CHIAM

the defendants herein issued a check in the amount of P 16,965.09 and cash in the amount of P 534.91 or total of P 17,500.00

Part of the pacto de retro sale stipulates that a rent in the amount of P 375.00 per month is to be paid by the appellants for use of the subject property

The appellants herein contend that the rent of P 375.00 is usurious, based on the value of the property

Issue:Is the contract a pacto de retro sale or a mortgage?

Ruling:The contract is pacto de retro and the appellees herein are not guilty of usury.It is clear in the words of the pacto de retro sale contract that it is indeed a pacto de retro sale. The parties to the said contract could not have made their intentions any clearer. Although it is a bitter pill to swallow, the appellants herein consented to the rent of P 375.00 per month for the use of the land.

Article 1281 of the Civil Code provides: "If the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal sense of its stipulations shall be followed." Article 1282 provides: "in order to judge as to the intention of the contracting parties, attention must be paid principally to their conduct at the time of making the contract and subsequently thereto.""There is not a word, a phrase, a sentence or paragraph found in said contract which needs explanation. The parties thereto entered into said contract with the full understanding of its terms and should not now be permitted to change or modify it by parol evidence." - Ponente

The decision appealed from is AFFIRMED by the Supreme Court

dissent of Justice Malcolm"I regret to have to dissent from the comprehensive majority decision. I stand squarely on the proposition that the contract executed by the parties was merely a clever device to cover up the payment of usurious interest. The fact that the document purports to be a true sale with right of repurchase means nothing. The fact that the instrument includes a contract of lease on the property whereby the lessees as vendors apparently bind themselves to pay rent at the rate of P375 per month and whereby "Default in the payment of the rent agreed for two consecutive months will terminate this lease and will forfeit our right of repurchase, as though the term had expired naturally" does mean something, and taken together with the oral testimony is indicative of a subterfuge hiding a usurious loan." -

QUINTOS v BECK (G.R. No. L-46240) November 3, 1939

CommodatumCommodatum refers to a gratuitous loan of a movable property which is to be returned undamaged to the lender. The word commodatum comes from the Latin word commodore which means “to lend.” It is a loan for use at loan. This arrangement is for the sole benefit of the borrower. It is one of three types of contracts for permissive use,. When the debtor of a contract binds himself to return to the creditor a movable property which the creditor has given to the debtor for personal use, without any consideration, then such contract is called the contract of commodatum.

Facts: On January 14, 1936, upon the novation of the contract of

lease between the plaintiff and the defendant, the former gratuitously granted to the latter the use of the furniture described in the third paragraph of the stipulation of facts, subject to the condition that the defendant would return them to the plaintiff upon the latter's demand

The plaintiff sold the property to Maria Lopez and Rosario Lopez and on September 14, 1936, these three notified the

defendant of the conveyance, giving him sixty days to vacate the premises under one of the clauses of the contract of lease

On November 5, 1936, the defendant, through another person, wrote to the plaintiff reiterating that she may call for the furniture in the ground floor of the house. On the 7th of the same month, the defendant wrote another letter to the plaintiff informing her that he could not give up the three gas heaters and the four electric lamps because he would use them until the 15th of the same month when the lease in due to expire

Before vacating the premises, the defendant herein deposited the subject furniture to the Sheriff

The lower court ordered the parties herein that the costs of the return of the furniture of appellant must be divided in pro rata by the parties and that the parties hereto are to pay their respective legal fees

The appellant appealed the decision of the lower court and alleged that it had erred in its decision of charging the appellant costs for the return of the furniture

Issue: Whether the defendant complied with his obligation to return the furniture upon the plaintiff's demand, thusconstituting commodatum?

Ruling:The Supreme Court held that the contract entered into by the parties is one of commodatum. Therefore, the appellee acted in bad faith in not returning the furniture lent to them by the appellees.

The Supreme Court reversed the decision of the lower court and charged all the costs to the appellee.

FRIAS VS SAN DIEGO-SISON (G.R. No. 155223) April 4, 2007

Facts: Bobie Rose Frias, acting through her attorney-in-fact Marie

Regine Fujita, is the owner of a house an lot located at Ayala Alabang, which she acquired from Island Masters Realty and Development Corporation by virtue of a Deed of Sale dated Nov. 16, 1990.

Dec. 7, 1990 – Frias and Dra. San Diego-Sison entered into a MOA over the said property with the terms being:

Sison has a period of 6 months from the date of execution of the contract within which to notify Frias of her intention to purchase the aforementioned parcel of land together within the improvements thereon at the price of P6,400,000. Upon notice to Frias of Sison’s intention to purchase the same, the latter has a period of another 6 months within which to pay the remaining balance of P3,400,000.

Prior to the 6 month-period given to Sison within which to decide whether or not to purchase the abovementioned property, Frias may still offer the said property to other persons who may be interested to buy the same provided that the amount of P3M shall be paid to the latter including interest based on prevailing compounded bank interest plus the amount of the sale in excess of P7M, should the property be sold at a price more than P7M.

That in case Frias has no other buyer within the first six months from the execution of this contract, no interest shall be charged by Sison on the P3M. However, in the event that on the 6th month Sison would decide not to purchase the aforementioned property, Frias has a period of another 6 months within which to pay the sum of P3M provided that the said amount shall earn compounded bank interest for the last six months only. Under this circumstance, the amount of P3M given by Sison shall be treated as a loan and the property shall be considered as the security of the mortgage which can be enforced in accordance with law.

Frias received P2M in cash from Sison and P1M in a post-dated check dated Feb. 28, 1990, instead of 1991, rendering the check stale. Frias then gave Sison the aforementioned property in the name of IMRDC and the Deed of Absolute Sale over the property between Frias and IMRDC. However, Sison decided not to purchase the property and notified Frias through a letter, dated March 20, 1991, which Frias only received on June 11, 1991. The letter reminded Frias of their agreement that the amount of P2M which Frias received from Sison should be considered as a loan, payable within 6 months. Frias failed to pay within the specified period.

On April 1, 1993, Sison filed a complaint for sum of money with preliminary attachment against Frias in RTC-Manila. The Executive Judge then issued a writ of preliminary attachment upon the filing of a bond in the amount of P2M on April 6, 1993.

The RTC found that Frias was under obligation to pay Sison the amount of P2M plus compounded interest pursuant to the MOA. It was also found that Frias, through her amended answer, employed a fraudulent scheme in where the end result was to deprive Sison of her only security to her loaned money, when Frias executed an affidavit of loss and instituted a petition for the issuance of an owner’s duplicate title knowing that the TCT was in Sison’s possession.

Issue:

Whether or not the compounded bank interest should be limited to six months as contained in the MOA

Ruling:

NO. The MOA executed between Frias and Sison on December 7, 1990 is the law between the parties. In resolving an issue based upon a contract, we must first examine the contract itself, especially the provisions thereof which are relevant to the controversy. The general rule is that if the terms of an agreement are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations shall prevail. It is further required that the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. In this case, the phrase “for the last six months only” should be taken in the context of the entire agreement.

“Their agreement speaks of two periods of six months each. The first six-month period was given to Sison to make up her mind whether or not to purchase Frias’s property. The second six-month period was given to Frias to pay the P2M loan in the event that Sison decided not to buy the subject property, in which case interest will be charged ‘for the last six months only’, referring to the second six-month period. That means that no interest will be charged for the first six-month period while Sison was making up her mind whether to buy the property, but only for the second six months after Sison had decided not to buy the property.”The agreement that the amount given shall bear compounded bank interest for the last six months only (the second six-month period), does not mean that interest will no longer be charged after the second six-month period since such stipulation was made on the logical and reasonable expectation that such amount will be paid within the stipulated date. Since Frias failed to pay the amount given, which under the MOA shall be considered a loan, the monetary interest for the last six months continued to accrue until actual payment of the loaned amount. The payment of regular interest constitutes the price or cost of the use of money and thus, until the principal sum due is returned to the creditor [Sison], regular interest continues to accrue since the debtor [Frias] continues to use such principal amount. It has been held that for a debtor to continue in the possession of the principal of the loan and to continue the use of the same after maturity of the loan without payment of the monetary interest, would constitute unjust enrichment on the part of the debtor at the expense of the creditor. Both parties stipulated that the loaned amount shall earn compounded bank interests, and per the certification issued by Prudential Bank, the interest rate for loans in 1991 ranged from 25%-32% per annum. The CA reduced the interest rate to 25%, instead of the 32% awarded by the TC. We find the interest rate of 25% per annum awarded by the CA to a P2M loan is fair and reasonable.

Republic vs. (Grijaldo G.R. No. L-20240) December 31, 1965 Facts:

1943 – Jose Grijaldo obtained five loans from the Bank of Taiwan, Ltd., in Bacolod City, in the total sum of P1,281.97 with interest at the rate of 6% per annum, compounded quarterly. The loans were evidenced by 5 promissory notes executed by Grijaldo in favor of the Bank of Taiwan. All notes did not have any due dates, for they were due one year after they were incurred. Grijaldo secured the payment of the loans by executing a chattel mortgage on the standing crops of his land, Hacienda Campugas in Hinigaran.

The Vesting Order No. P-4 of 1946, and under the authority provided for in the amended Trading with the Enemy Act, the assets in the Philippines of the Bank of Taiwan were vested in the government of the US. The assets of the Bank, including the loans in question, were subsequently transferred to the Republic of the Philippines by the US government under the transfer agreement dated July 20, 1954.

On Sept 29, 1954, the Republic of the Philippines [RP], represented by the Chairman of the Board of Liquidators, made a written extrajudicial demand upon Gijaldo for the payment of the account in question. The record shows that Grijaldo had actually received the written demand, but failed to pay.

The aggregate amount due as principal of the five loans in question, computed under the Ballantyne scale of values at the time that the loans were incurred in 1943, was P889.64. The interest due thereon at the rate of 6% per annum compounded quarterly, computed as of Dec. 31, 1959, was P2,377.23.

July 17, 1961. RP filed a complaint in the Justice of Peace Court of Hinigaran to collect from Grijaldo the unpaid account

in question. The Justice of Peace dismissed the case after hearing due to prescription. RP then appealed to CFI-Negros Occidental, and the court ordered Grijaldo to pay the sum of P2,377.23 as of Dec. 31, 1959, plus interest at the rate of 6% per annum, compounded quarterly from the date of filing of the complaint until full payment was made.

Grijaldo appealed to the SC, but died during the pendency of the appeal. His heirs were made parties to the case in his stead.

Issue 1: Whether or not RP has a cause of action against Grijaldo; and,

Ruling:

YES, RP has a cause of action against Grijaldo. In discussing the first point of contention, the appellant maintains that the appellee has no privity of contract with the appellant. It is claimed that the transaction between the Taiwan Bank, Ltd. and the appellant, so that the appellee, Republic of the Philippines, could not legally bring action against the appellant for the enforcement of the obligation involved in said transaction. This contention has no merit. It is true that the Bank of Taiwan, Ltd. was the original creditor and the transaction between the appellant and the Bank of Taiwan was a private contract of loan. However, pursuant to the Trading with the Enemy Act, as amended, and Executive Order No. 9095 of the United States; and under Vesting Order No. P-4, dated January 21, 1946, the properties of the Bank of Taiwan, Ltd., an entity which was declared to be under the jurisdiction of the enemy country (Japan), were vested in the United States Government and the Republic of the Philippines, the assets of the Bank of Taiwan, Ltd. were transferred to and vested in the Republic of the Philippines. The successive transfer of the rights over the loans in question from the Bank of Taiwan, Ltd. to the United States Government, and from the United States Government to the government of the Republic of the Philippines, made the Republic of the Philippines the successor of the rights, title and interest in said loans, thereby creating a privity of contract between the appellee and the appellant.

As successor in interest in, and transferee of, the property rights of the United States of America over the loans in question, the Republic of the Philippines had thereby become a privy to the original contracts of loan between the Bank of Taiwan, Ltd. and the appellant. It follows, therefore, that the Republic of the Philippines has a legal right to bring the present action against the appellant Jose Grijaldo.

The appellant likewise maintains, in support of his contention that the appellee has no cause of action, that because the loans were secured by a chattel mortgage on the standing crops on a land owned by him and these crops were lost or destroyed through enemy action his obligation to pay the loans was thereby extinguished. This argument is untenable. The terms of the promissory notes and the chattel mortgage that the appellant executed in favor of the Bank of Taiwan, Ltd. do not support the claim of appellant. The obligation of the appellant under the five promissory notes was not to deliver a determinate thing namely, the crops to be harvested from his land, or the value of the crops that would be harvested from his land. Rather, his obligation was to pay a generic thing — the amount of money representing the total sum of the five loans, with interest.

The chattel mortgage on the crops growing on appellant's land simply stood as a security for the fulfillment of appellant's obligation covered by the five promissory notes, and the loss of the crops did not extinguish his obligation to pay, because the account could still be paid from other sources aside from the mortgaged crops.

Issue 2: Whether or not the lower court erred in ordering Grijaldo to pay the amount of P2,377.23.

Ruling:

The decision of the court a quo ordered the appellant to pay the sum of P2,377.23 as of December 31, 1959, plus interest rate of 6% per annum compounded quarterly from the date of the filing of the complaint. The sum total of the five loans obtained by the appellant from the Bank of Taiwan, Ltd. was P1,281.97 in Japanese war notes. Computed under the Ballantyne Scale of values as of June 1943, this sum of P1,281.97 in Japanese war notes in June 1943 is equivalent to P889.64 in genuine Philippine currency which was considered the aggregate amount due as principal of the five loans, and the amount of P2,377.23 as of December 31, 1959 was arrived at after computing the interest on the principal sum of P889.64 compounded quarterly from the time the obligations were incurred in 1943.

ANGEL WAREHOUSING V CHELDA (G.R. No. L-25704) April 24, 1968

Facts: Angel Jose Warehousing instituted an action for the recovery

of the amount loaned amounting to P 20, 800 with legal interest.

The lower court found that there was indeed a balance of P 20, 800 and that the plaintiff charged usurious interests. The same court ruled that the plaintiff is not barred from collecting the principal amount notwithstanding the usurious interests.

Issues:1. In a loan with usurious interest, may the creditor recover the

principal of the loan?

2. Does the illegal term as to the payment of interest renders the contract null because of the nullity of its legal terms to pay the debt?

Ruling:

1. YES. A loan with usurious interest is not totally void, only insofar as the interest. Rule of pari delicto cannot be applied on this case. SC stated that the contract of loan consists of 2 separate contracts – the contract to pay the principal amount as the principal contract, and the contract for the payment of interest as the accessory. These 2 contracts are divisible in the sense that the principal contract can stand on its own without the accessory.

As stated in Article 1273 of the NCC, the renunciation of the principal shall extinguish the accessory, but the waiver of the latter leave the former in force.

2. NO. In cases of divisible contracts, Article 1420 of the NCC provides that if the illegal terms can be separated from the legal term, then the legal term can still be enforce. In loans with usurious interests, the illegality only lies with the payment of interest, and being separable, will only be the one void since it is the only one illegal.

AFFIRMED.

CU UNJIENG HIJOS V MABALACAT (GR 32644, OCT. 9, 1930)

Facts: An action was instituted by Cu Unjieng Hjos against Mabalacat

for the payment of an indebtedness amounting to P 163, 000 with interest as well as the foreclosure of the mortgaged property and recovery of attorney’s fees.

Mabalacat Sugar Co., appealed the lower court’s decision favoring the plaintiff.

Issues:1. Did the act of extending the payment of the mortgage

indebtedness have the effect of abrogating the stipulation of the original contract with respect to the acceleration of the maturity of debt?

2. Were the interest charges usurious?

Ruling:

1. NO. The agreement to extend is voluntary and without consideration as far as the creditor is concerned, therefore, the failure of the debtor to comply with the terms of the condition justified the creditor in treating it with no effect.

2. NO. The parties’ agreement indicated only that interest be made in a monthly installment. Under Article 1109 of the NCC and Sec. 5 of the Usury Law, parties may still stipulate that the interest be compounded, however, in the absence of an expressed provision, no interest can be collected upon interest until the debt s judicially claimed.

MODIFIED.

EASTERN SHIPPING LINES VS. CA (GR NO. 97412) JULY 12, 1994

Facts: On December 4, 1921, Eastern Shipping Lines transported two

fiber drums of riboflavin from Japan to Manila. The shipment was insure by Mercantile Insurance Company for P36,382,466.38.

When the shipment arrived in Manila, its custody was given to the arrastre, Metro Port Services, with which received the same with one of the fiber drums in a damaged condition.

When the shipment was win the custody of the broker, Allied Brokerage, one of the fiber drums was opened without a seal, a cello bag partly torn and the unrecovable spillages amount to 15kgs.

Consignee suffered P19,032.95 worth of losses. Mercantile Insurance Company covered and subsequently went after Eastern Shipping Lines .

Upon reaching the Court of Appeals, the decision rendered favored Mercantile Insurance and the amount of P19,032.95, with legal interest of 12% per annum from October 1, 1982, the date of filing, until fully paid, was ordered.

Issues:

1. When shall the payment of legal interest on an award for loss or damage to be computed? From the time the complaint is filed or from the date the decision appealed from is rendered;?

2. What is the applicable rate of interest? Twelve percent (12%) or six percent (6%)?

Ruling:

From the date of decision. The Supreme Court cited seven cases, grouping them into two classifications. The first group showed the legal interest computation started from the filing of complaint while the second group started from the date of decision.

To clarify the inconsistencies, the Supreme Court laid down the following rules of thumb:

a. When an obligation is breached consisting of payment of a sum of money (a loan or forbearance of money) the stipulated and written interest shall be due. In the absence of stipulation, 12% per annum is applied. The interest due shall earn interest itself from the time it is judicially demanded.

b. When an obligation is breached not consisting of a loan or forbearance of money (payment of indemnities in the concept of damage arising from the breach or a delay in the performance of obligations), interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however will be adjudged for unliquidated claims or damages as the demand needs to be established with reasonable certainty.

b.1. When the demand is established with reasonable certainty, the interest shall start from the time the claim is made judicially or extrajudicially based on Art. 1169, Civil Codeb.2. When the demand is made without reasonable certainty, the interest shall begin to run only from the date the judgment of the court is made

c. When the court has already made the awarding of a sum of money final and executory the rate shall be at 12% per annum.Such is made despite the consistent rulings where 12% interest per annum applies only to loans or forbearance of money, goods or credits, as well as to judgments involving such loan or forbearance of money, goods or credits, and that the 6% interest under the Civil Code governs when the transaction involves the payment of indemnities in the concept of damage arising from the breach or a delay in the performance of obligations in general.

TOMIMBANG V TOMIMBANG (GR NO.165116 AUG. 4, 2009)

Facts: Atty.Jose and Soledad Tomimbang are siblings. Soledad

entered into a loan with Atty. Jose to finance the renovation of the apartment donated to her by their parents. One of the conditions of the loan is Soledad to start paying the loan upon the completion of the renovation.

A disagreement occurred between the siblings and a new agreement was entered into wherein Soledad was to start making monthly payments despite one more unit of the apartment has yet to be renovated.

Soledad then paid for June to October of 1997 which were monthly payments of P18,700.00, or a total of P93,500.00.

On October of 1997, another disagreement took place. Soledad left the apartment and stopped paying her dues to her brother.

On February 2, 1998, Atty. Jose filed a complaint at RTC for Soledad to pay him the net amount of P3,989,802.25 plus interest of 12% per annum from date of default.

RTC rendered decision in favor of Atty. Jose. Soledad appealed to CA and was denied. Upon motion for reconsideration, she suffered the same fate.

Soledad contends that the loan is not yet due and demandable because the suspensive condition – the completion of the renovation of the apartment units - has not yet been fulfilled. Atty. Jose, however, asserts that they entered into a new agreement whereby she was to start making monthly payments on her loan, which she did from June to October of 1997. They had a novation of agreement and thus, her obligation was due and demandable.

Issues:

1. Whether Soledad’s obligation is due and demandable2. Whether interest should be imposed on Soledad’s

indebtedness and, if so, at what rate

Ruling:

1. Yes, Soledad’s obligation is due and demandable. The Supreme Court held that the evidence showed the siblings’

agreement that despite only seven out of eight units of the apartment were renovated, Soledad needs to start paying monthly payments, which she actually did. Both of them mutually dispensed with the condition that petitioner shall only begin paying after the completion of all renovations. There was, in effect, a modificatory or partial novation as according to Art. 1291 of the Civil Code. Also, her partial performance of her obligation (payment of June-October) is unmistakable proof that the original agreement had been novated by the deletion of the condition that payments shall be made only after completion of renovations.

2. 12%. The Supreme Court cited the prior case of Eastern Shipping Lines v CA. The 12% per annum rate under CB Circular No. 416 shall apply only to loans or forbearance of money, goods, or credits, as well as to judgments involving such loan or forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code applies “when the transaction involves the payment of indemnities in the concept of damage arising from the breach or a delay in the performance of obligations in general,” with the application of both rates reckoned “from the time the complaint was filed until the [adjudged] amount is fully paid.” Thus, since this case involves a loan and there is no stipulation in writing as to interest due, the rate of interest shall be 12% per annum computed from the date of extrajudicial demand.

UPSUMCO vs CA ( G.R. No. 126890)   March 9, 2010

Facts: In 1974, UPSUMCO obtained a takeoff loan from PNB for the

construction of Sugar Milling Plant, and then it was thrice restructured for its restructuring loan. These loans were secured by real estate mortgage on 2 parcels of land where the mill stood and chattel mortgages on some of its machineries and equipments. Also, UCSUMCO agreed to open and maintain deposit in PNB for the latter to apply to former’s unpaid obligations

From 1984-87, petitioner obtained loans to finance the operation of the Mill, these were secured by pledges by former assigning PNB to sell the sugar produce and apply it to satisfy debts arising from operational loans.

PNB transferred and assigned to APT the rights, titles, interest to the mortgaged assets of UPSUMCO on Feb. 27, 1987 in compliance with PD 50

UPSUMCO and APT then agreed to an uncontested or friendly foreclosure in exchange for the former’s waiving of its right of redemption. PNB and APT then instituted an extrajudicial foreclosure on the properties securing the takeoff loan; APT purchased the assets for P450M on Aug. 27, 1987

UPSUMCO executed the Deed of Assignment assigned to APT on Sept. 3, 1987 (7 days after the purchase), in exchange for APT condoning “any” deficiency amount on takeoff loan.

UPSUMCO contends that despite the deed of assignment, respondent illegally appropriated funds belonging to petitioner by 1) withdrawal from its account from Aug. 27, 1987 until Feb. 12, 1990; 2) application of the proceeds from the sale of sugar by petitioner; 3) by deducting from its account payments on operational loans; .

RTC rendered judgment in favor of the petitioner. CA reversed and set aside the RTC Decision and ruled that

only the "takeoff" loans and not the operational loans were condoned by the Deed of Assignment

Issues:1. A) Whether APT has still the right to the deposit of UCSUMCO

after Aug. 27, 1987 friendly agreemen and B) that the APT’s condonation does not include the Operational Loan

2. Whether the withdrawals of UPSUMCO’s deposits are valid on the ground of conventional compensation

Ruling:

1. A) YES. After 27 August 1987, there were at least two causes for the application of payments from UPSUMCO’s PNB accounts. The first was for the repayment of the operational loans, which were never condoned. The second was for the repayment of the take-off loans which APT could obtain until 3 September 1987, the day the condonation took effect.

B) YES. Deed of Assignment condoned only the take-off loans, and not the operational loans.Operational loan is not indicated on the operative part of the deed of assignment. The CA acknowledged that only the take-off loans were condoned, and thus ruled that APT was entitled to have the funds from UPSUMCOS’s accounts transferred to its own account "to the extent of UPSUMCO’s remaining obligation,

less the amount condoned in the Deed of Assignment and the 450,000,000.00 proceeds of the foreclosure.

2. YES. There is, concededly, no mutual creditor-debtor relation between APT and UPSUMCO. However, we recognize the concept of conventional compensation, defined as occurring “when the parties agree to compensate their mutual obligations even if some requisite is lacking, such as that provided in Article 1282.” It is intended to eliminate or overcome obstacles which prevent ipso jure extinguishment of their obligations.

Legal compensation takes place by operation of law when all the requisites are present, as opposed to conventional compensation which takes place when the parties agree to compensate their mutual obligations even in the absence of some requisites. The only requisites of conventional compensation are (1) that each of the parties can dispose of the credit he seeks to compensate, and (2) that they agree to the mutual extinguishment of their credits.

DENIED WITH FINALITY for lack of merit.

MACALINAO VS BPI ( G.R. NO.   175490) SEPTEMBER 17, 2009

Facts: Petitioner was an approved cardholder of BPI mastercard. She used the card in purchase of goods and later on defaulted

in paying said purchases. The total amount payable inclusive of the 3% per month

interest and 3% per month pernalty is 141,518.34. Petitioner failed to settle her obligations despite the demand

letter sent by BPI, latter then filed a complaint for sum of money against petitioner and her husband.

MeTC declared unconscionable and clearly excessive the rate imposed by BPI on its complaint, thus the 9.25% per month or 111%per annum of interest and penalty combined are reduced to 2% per month or 24% per annum.

RTC affimed in toto CA affirmed yet modified MeTC decision and increased 2% to

3% per month or 36% per annum based on the Terms and Conditions Governing the Issuance and Use of BPI Credit Card

1. The amount of One Hundred

Twenty Six Thousand Seven

Hundred Six Pesos and Seventy

Centavos (126,706.70) plus interest

and penalty charges of 3% per month

from January 5, 2004 until fully paid;

2.      P10,000.00 as and by way of

attorney’s fees; and

3.      Cost of Suit.

  Issues:

1. Whether 2% per month interest and penalty or 24% per annum should be upheld

2. Whether 3% per month interest and penalty are unconscionable, iniquitous, and excessive

Ruling:1. Yes, the court upholds the 2%/month interest

(1) The amount of one hundred twelve thousand three

hundred nine pesos and fifty-two centavos (PhP

112,309.52) plus interest and penalty charges of 2% per

month from January 5, 2004 until fully paid;

(2) PhP 10,000 as and by way of attorney’s fees; and(3) Cost of suit

2. Yes, the court finds 3%/month interest are unconscionable, iniquitous, and excessive

We need not unsettle the principle we had affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher are excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being contrary to morals, if not against the law. (Chua vs Timan)  

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.

Petition PARTLY GRANTED and MODIFIED